Behavioral Finance

Finding Meaning In Your Life

For a few years now there has been an increasing trend toward people taking steps to find greater meaning in their life. Gradually, more and more people are having the courage to do it and not just talk about it. This may involve turning their back on what is a well paid job and years of study and even moving from where they live. I even believe that this desire to find meaning will increase with turbulent financial times which could be quite dislocating for some. To survive emotionally and financially people will have to change their perspective on life and their relationship to money so that their meaning is not as much defined by how much they have.

I know for myself the Financial DNA business exists today because this is a major life transformation I made. I found my deep passion is to help people worldwide to become more financially empowered through greater self understanding of how they are wired. This was a big shift from the numbers world of accounting, tax and packaging investments for people. What I do know is that your quality of life in every dimension can increase well beyond where you are today if you take the plunge.

I would encourage everyone to discover who they are and what would provide the greatest meaning in your life. Do not die with regrets. Of course a fear is the financial consequences. Remember getting there is a building process and will not happen overnight. Putting a plan in place is the key to start with and thereafter you can manifest it step by step over a number of years.

Also, there is the fear of actually what am I passionate about? How do I discover that? There are processes for discovery which are both structured and more feelings based. We are helping many people around the world with discovering their passions as this is a core part of reaching a greater level of becoming more financially empowered. If you would like some inspiration click on the link to this USA Today article on 24 September 2008.

Uncovering Human Behavior Risks

Generally in business, and particularly in financial services, people associate risk with the markets or economy. What we fail to drill down into are the risks caused by human behavior. Another way of looking at this is to consider how people handle the market risks. What decisions do they make? What solutions do they come up with? How do they manage their emotions? How do they communicate?

In essence, the market risks can be managed or exacerbated by human behavior. So, what needs to be better understood is how your people are going to handle market and economic risks that may be impacting your business. This will be particularly important when they are under pressure. What are their blind spots? What are your blind spots? Then, how will you manage your people so the risks are better managed?

Through our Financial DNA profiles we are able to reliably predict how people will behave and therefore the risks they may cause. Will they take too many chances? Will they be too impatient? Are they too independent and not accountable? We have found that the profiles are able to provide great insights into the true behavior of people when they are under pressure. Having this information can help you put in place the right management controls and also to provide the individuals with more self-awareness of how they will make decisions which could cause or exacerbate market risks. There is no doubt a large part of the success or failure of businesses in the long term comes down to being aware of and managing human behavior. You only have to look at some of the major corporate and banking disasters to see this.

So how aware are you of the risks that your people could be causing to the future of your business?

Dreams and Goals

Would you prefer to be asked about your dreams or your goals?

Last week in one of our Wealth Mentor Community Calls we discussed this very question. Prior to the meeting, I had the Wealth Mentor participants read a book called the Dream Manager by Matthew Kelly. This book really brings out the connective power of encouraging people to get in touch with their dreams.

The point that emerged during the discussion was that most people would prefer to be asked about their dreams rather than goals. The word dreams is softer and has greater resonance for most people. Also, the concept of dreams is less restrictive and more free-flowing. Goals are perceived more as actions and objectives that need to be defined and measured. People often associate “SMART” with goals – specific, measurable, actionable, realistic and time based.

Kelly also brings out in his book how important dreams are to building your relationship with money as they are fundamental to who you are. He really emphasizes how life and financial decisions are totally integrated. Therefore, getting in touch with your dreams is fundamental to building both your life and wealth.

In a nutshell, if you want to open your client up to what they really want in their financial life then consider firstly asking them about their dreams. The goals can be discussed and worked out later. They will usually come from the dreams. You may find that this is also more fun which also helps build the trust.

No harm could be done by getting your clients to read the Dream Manager. Even if all you do is ask your clients to write down a big list of dreams then you are off to a great start in discovering who they are and building a great relationship. Imagine the possibilities when you get couples doing this or what could happen in a family meeting?

Managing Risk

On the weekend, I had the great fortune to listen to a very inspiring presentation by Dr. Ben Carson. Dr. Carson is a leading pediatric neurosurgeon at the John Hopkins Hospital. In his career he has been a pioneer in performing highly risky surgery on children. He has a great book: “Take the Risk – Learning to Identify, Choose and Live with Acceptable Risk”.

Dr. Carson explained how he has often been faced with addressing the viability of taking a major risk in his work. What is there to gain? Will it be worthwhile? What if I fail? He made the insightful comment that if no one took a risk then today there would be no airplanes or cars or other technologies. Society always benefits from someone taking risks as lessons can be learned.

Is ducking risk the most productive way to live? Nothing will be achieved without taking risks. However, nothing will be achieved by taking inappropriate risks. The question then becomes what is an acceptable risk? In this regard, what is an acceptable risk to people will be different because we are all unique. Dr. Carson says you need to build your risk analysis model based on who you are, your values and also your learning style.

All of the principles Dr. Carson states can be equally applied to determining your financial risk tolerance and how you make financial decisions. The quality of life you build for yourself will be somewhat dependent on the risks you take. Ultimately, what is an acceptable financial risk will come down to your relationship to money. Further you and your partner need to check your “couple compatibility” index so that the risks taken are acceptable to both of you.

Review Your Relationship with Money

Recently, I have had a great experience in reading a book called The Energy of Money by Maria Nemeth. I would thoroughly recommend this book to any person who is interested in better understanding their relationship to money. After all, this is what I have been advocating very strongly in my past few blogs. To become financially educated and realize your potential, you need to understand who you are and why you make the life and financial decisions that you do.

Maria’s book is very consistent with the philosophy that we have at Financial DNA that life and money decisions are totally integrated and interdependent. Related to this point Maria explains very well how ultimately, your success comes down to how you handle energy. The only difference is that Financial DNA goes one step further and provides a robust and University validated system to measure your energy based on profiling who you are.

In the book, Maria says that: “Our relationship with money is a metaphor for our relationship with all forms of energy: time, physical, vitality, enjoyment, creativity and support of friends”. She then goes on to explain that these energies are what empower our lives. Without any one of them our life becomes difficult. Each is interdependent. Your success and comfort with money will be echoed through all of these areas. Maria says that when you learn to use money energy, you can learn to use any form of energy with ease. Our process starts with a Quality Life Review so that we can see which of these areas you are currently strong in and those which are a struggle and need further development. This process is key to successful financial planning because it is sending a message of where potentially your energy is and where it needs to be.

Also, related to all of this we need to be clear about what is meant by “successful” people. This is not just about financial success. Maria defines successful people as those who have succeeded in using money to realize their hearts’ desires as well as people who have used money to become comfortable or wealthy personally and professionally.

Think about your own definition of success and your energy. How does that relate to money?

Financial Education in Turbulent Times

My last couple of blogs have really hit on the issue of financial education to develop greater financial capability for the consumer. Why am I harping on it more? Yes, it is my passion and the core of why Financial DNA was developed. However, the need is now “red hot” with the financial markets in turbulence and many people very concerned about how they will unwind. Are we at the lows yet? It would not seem likely. So, there is potential for a lot more concern and emotion yet.

The question becomes how will you behave in these turbulent times? What decisions will you make? How will you make them?

Every one has emotions. Further, nothing more than money can trigger your emotions and cause you to make irrational decisions. The key is to have greater self understanding of your emotions and propensities to making financial decisions. Also, it is important that you stay focused on your life purpose. This may sound lofty and big picture. However, your life purpose is the foundation of your goals and your wealth creation strategies. I have always seen that those who stay focused on their life purpose are the ones who make it through turbulent times and manage their emotions.

Remember that 5% of your wealth will come from investments and 95% from your behavior. So, understanding your behavior will get the results in the end.

So, what is the next step? Get more of the right financial education and become financially literate. The focus of this education should clearly be to become more educated about who you are and your life purpose. The Financial DNA purpose and that of our Wealth Mentors is to provide you with this education. Ultimately if you are interested in preserving your wealth in turbulent times then this is the best strategy out there.